Who gets to pocket JPMorgan's $13 billion fine?

One of the big populist knocks against the Obama administration is that five years after Wall Street banks helped tank the economy by wildly speculating in the housing market, the banks have received only slaps on the wrist and no bank executives are in jail. That latter part may still be true, but the former isn't. America's largest bank, JPMorgan Chase, has just agreed to pay $13 billion to resolve a host of issues related to sketchy mortgage-backed securities.

The tentative deal, which might still be scuttled over the bank's reluctance to admit to wrongdoing, is by far the largest single settlement from the 2008 financial crisis, and the biggest ever settlement between the U.S. government and one company. It is also a huge sum of money. (For context: $13 billion is a little more than half of JPMorgan's $23.1 billion in profits from last year).

According to an in-depth history of the settlement from The New York Times' Ben Protess and Jessica Silver-Greenberg, talks on a deal started in July, after the U.S. attorney in Sacramento outlined his office's case against JPMorgan over its packaging and sales of mortgage-backed securities.

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Over the next month, other cases were drawn in — the Justice Department, federal prosecutors in Pennsylvania, New York Attorney General Eric Schneiderman, and the Federal Housing Finance Agency all had separate investigations or lawsuits targeting mortgage securities sold by Bear Stearns and Washington Mutual, both purchased by JPMorgan during the financial crisis. JPMorgan wanted to settle all the cases together, and gradually raised its settlement offer from $1 billion to $11 billion in late September.

On October 18, after five calls between JPMorgan CEO Jamie Dimon and Attorney General Eric Holder, Dimon reportedly asked, "What will it take to get this done?" Holder said $13 billion, and no agreement to drop separate criminal charges against the bank. Dimon reportedly said all right, and the outline of settlement was in place.

Not everyone thinks this is a great deal for JPMorgan, especially since — at least as Dimon tells it — the bank agreed to scoop up Bear Stearns and Washington Mutual for bargain-basement prices as a favor to the U.S. government:

But JPMorgan obviously thinks that $13 billion is a fair price to get this heap of uncertainty off its plate. The bank has set aside $28 billion since 2010 to cover legal expenses, and drew down $8 billion before this settlement.

But assuming the deal goes through, who gets this $13 billion pot of gold?

The Federal Housing Finance Agency: $4 billion

The government agency that oversees Fannie Mae and Freddie Mac will get $4 billion of the $13 billion settlement. That looks pretty good until you consider it bought $33 billion worth of lousy mortgage-backed securities from JPMorgan, Washington Mutual, and Bear Stearns between 2005 and 2007 — so, in effect, the FHFA is getting back 12 cents on every dollar it invested.

As Bloomberg's Ryan Chilcote notes, 12 cents to the dollar is about the same as the government agreed to in a settlement with Bank of America, making a possible template for future government settlements.

Homeowners: $4 billion

In a September 26 face-to-face meeting between Holder, Dimon, and their deputies and lawyers, both sides agreed that $4 billion of the settlement would go toward homeowners affected by the bonds. There aren't great details on how this part of the settlement will work, though reduced mortgage balances are said to be part of the bargain.

"How the consumer relief and penalties get dispersed and distributed is largely up to the government, and those details are still unclear," say Devlin Barrett and Dan Fitzpatrick in The Wall Street Journal.

Because the details are so fuzzy, says Bloomberg View's Jonathan Weil, "this could take the form of coupons, discounts, or other soft benefits, which might not cost JPMorgan anywhere near $4 billion in the end." If it turns out that the settlement "lets JPMorgan finance breaks for homeowners with other people's money rather than its own," Weil says, "that isn't much punishment."

DOJ, New York, and investors: $5 billion

The remaining $5 billion will be divided between the Justice Department and New York's attorney general's office. In his office's lawsuit, Schneiderman said that investors had lost $22.5 billion from $87 billion in Bear Stearns mortgage-backed securities. Presumably, some of the New York State portion of the fines will be returned to investors.

As for the federal portion, "the government will no doubt present the record settlement as a major victory," says Francesco Guerrera at The Wall Street Journal. But the deal is "unlikely to silence both those who accuse the feds of over-reaching in punishing JPMorgan and those who claim [they] didn’t go far enough in cracking down on precrisis excesses by banks." There is a way, though, to view the deal as "'win-win,' to use a hackneyed (and often wrong) Wall Street expression," Guerrera adds:

The long and short of this unverified settlement is that "there is still much we don't know," says Bloomberg View's Weil. JPMorgan is getting some peace from the government, and the Justice Department is showing it is "capable of holding a large bank accountable for violations of the law." The most likely final tally will show that neither side "won a total victory."

But there is one near-certain victim, says BuzzFeed's Matthew Zeitlin: So long to "Dimon's once-sterling reputation as the most savvy, responsible, and profitable bank manager."